BT Vision blurs pay TV landscape

Newcomer encroaches on BSkyB territory

LONDON — British Telecom, the once almighty U.K. telco, has raised the stakes in Blighty’s fast-evolving pay TV market — and established market leader BSkyB may lose out.

On Dec. 4 BT finally launched the much-delayed BT Vision, a hybrid digital terrestrial broadband VOD offer aimed at the U.K.’s 14 million pay TV refuseniks. The telco is investing $190 million a year in the initiative.

To get the service, BT broadband subscribers need a new set-top box — a V box that is given free, though there is a $170 installation charge.

Once this box is working, viewers get around 40 free TV channels, a built-in digital video recorder, and an entertainment VOD menu offering movies, TV and, crucially, live Premier League English soccer.

Prices start at under $4 per movie or $27 for a monthly subscription.

Fees for the soccer matches, until now sold exclusively by BSkyB, are still to be disclosed.

“People want more choice but they don’t want the commitment of paying £30 to £40 a month,” says BT’s retail topper Ian Livingston.

“BT Vision is all about giving control to the viewer — control over what they watch, when they watch it and how they pay for it.”

Prior to the launch, there was a lot of skepticism among Blighty’s media fraternity over BT Vision, mainly because the telco lacks experience as an entertainment provider.

But following the launch, a somewhat relaxed affair compared with BSkyB’s more in- your-face style, the doubters are having second thoughts.

So impressed were U.S. investment bank Citigroup that it published a note recommending investors ditch their BSkyB stock.

“BT Vision’s launch presents a more compelling product that we had anticipated,” says Citigroup. “BSkyB is in a fast-changing market and, as a result, earnings visibility is low.

“Going forward, we expect continued pressure on gross margins and therefore we feel that the risk reward on the stock is poor.”

BT Vision and BSkyB, which has 8 million customers and aims to up that to 10 million by 2010, are not direct competitors.

The BT service, however, is expected to make it more difficult for BSkyB to reach its subscriber targets, one reason why it is beefing up its own broadband service.

Last week BSkyB announced a partnership with Google in an effort to give it an edge in broadband.

“Ultimately BT may offer free TV to defend its share of the U.K. broadband market in the way that Sky already offers free broadband to its TV subscribers,” says Conrad Roeber, a partner at media strategy analysts Mediatique.

“Clearly BT is treading on Sky’s toes, but when you roll in the cost of BT’s broadband subscription, the price differences between the two is not all that great. Compared with Sky and cable, BT’s content is not particularly compelling,”

Roeber adds. “This is the key issue and at the moment they only have about 100 movies.

“Having said that, as a stand-alone proposition for customers who just want to pay for what they want to watch, BT Vision is potentially impressive.

“BT is not aiming for the number of subscribers that Sky has. But they are both fighting for the same late adopters — those 2 million extra subscribers Sky needs to reach its targets.”

Others are more skeptical regarding BT Vision’s chances of success.

“They’ve been forced into launching early,” reckons one media analyst. “This is because a lot of the rights they have are on a ‘use or lose’ basis.

“BT is aiming for between 2 and 3 million subscribers in four or so years.

“I don’t see how they can achieve this, especially when you look at how similar services are doing elsewhere in Europe.

“France has double the number of homes the U.K. has that don’t subscribe to pay TV services, and its VOD services have only a million customers between them.”

U.K. media analyst Screen Digest is also cool on BT Vision’s chances as a revenue earner, but reckons the ace that could determine its outcome is live soccer — the key driver of BSkyB’s success.

“Although BT stated that the service is targeted at those households without multichannel TV, a subscription sports proposition offering live Premier League football will pose a threat to BSkyB and may yet cause a reaction from the pay-TV operator,” it said.

In September BSkyB topper James Murdoch warned that BT could come unstuck if it attempts to undercut his paybox.

He said: “If BT wants to give away all the most expensive programming out there, that ends in a very scary place for them.”

Industryites will be watching BSkyB’s response.